The Interplay of Hope and Fear on Investment Choices

We examine how heterogeneity among investors’ goals,
personality, and motivations affect their current portfolio
allocation and future portfolio plans. We asked 1347 investors from
a national US sample the extent to which they agreed with 28
statements that reflected their investment strategy (adapted from
Hoffmann and Shefrin, 2011; e.g., “My investment decisions are
driven by hope for a positive outcome”), susceptibility to
normative influence (Bearden et al., 1989), risk attitude and
confidence (Wood and Zaichowsky, 2004). We used cluster analysis to
categorize investors into different groups, leading to the emergence
of four types of investors: The Hopeful, the Fearful, the Experts,
and the Socially Conscious. These four categories of investors
differ in terms of
their current portfolio allocation (ranging from checking accounts,
and mutual funds to commodities and ETFs). They have very different
motivations to invest. For example, the “fearful”
investor has the highest economic motivation to invest (e.g.,
“I want to safeguard my retirement,” Hoffmann 2007), and
the “hopeful” investor has the lowest psychological
motivation to invest (e.g., “It makes me feel smart,”
Chandon et al. 1990). The investor segments also vary in terms of
the importance associated with investment features such as fees
versus volatility of returns. These preferences are strongly related
to stable personality constructs such as investors’ overall
optimism and pessimism (Schreier et al., 1994), as well as their
promotion and prevention focus (Carver & White, 1994).

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